Get politics out of power

Get politics out of power

The Moncton Times and TranscriptOpinion, Wednesday, November 5, 2003, p. D7 Get politics out of power

The Chronicle-HeraldOpinion, Wednesday, November 5, 2003, p. B2 Electricity monopoly no game for politicians

Electrical power is too important to be left in the hands of politicians.

In the aftermath of California’s and Ontario’s botched electricity deregulation, that is the reverse of the prevailing conventional wisdom. But the conventional wisdom is quite wrong. The old dinosaurs of the electricity world, the provincially-owned monopoly utilities, have had their day, and it is only a matter of time before the politicians will be forced to lay down their arms in the struggle to retain the patronage and power that go with controlling this vital industry.

Why do politicians so consistently get electricity policy wrong? Economic truth is often politically unpopular, and politicians have been only too willing to pander to voters’ desire for artificially cheap electricity and unjustified massive construction projects today by storing up far worse electricity prices and massive debt for tomorrow.

New Brunswick is the latest province to have reached a crisis because there are no more quick fixes. The noose is tightening, but the provincial government and New Brunswick Power seem determined to pretend that the rope is nothing but the latest fashion in neckties.

New Brunswick Power’s nuclear power plant at Point Lepreau was supposed to generate power for export, but the export markets proved short-lived. Then it was decided to subsidize the conversion of many New Brunswick homes to electrical heat, partly to use up surplus power from Point Lepreau and later to provide justification for the Belledune coal-fired megaproject.

But Point Lepreau’s capacity is so huge that when it is operating (which is pretty infrequent these days because it is old and tired), prudence requires an equivalent reserve generating capacity be kept at the ready in case of a failure at the nuclear plant. A large fraction of the province’s generating capacity is normally kept idle, but ready to run a hugely expensive proposition.

Then there’s the coal. The utility still buys coal that is dirty and wildly uneconomic from its own subsidiary to fire its thermal generating plants. Cleaner and cheaper coal is available on world markets, but the utility and the provincial government prefer the political benefits of artificial jobs in a few local communities.

The result? Financial disaster. The huge investments in generating capacity, together with the highest utility operating costs in the country and an unwillingness to make New Brunswickers pay the full cost of these policies means that the province’s generating assets have destroyed value rather than creating it and the utility has lost money in most years since 1995.

The province hopes that by wishing hard enough it can make these problems disappear and still keep power under political control. It proposes transferring $1.5 billion of debt to the books of a Crown agency for whom the taxpayers of the province bear ultimate responsibility, and the breaking up of the utility into separate Crown Corporations charged with functions like conventional generation, nuclear generation, distribution and sales.

That might help if the province were capping the exposure of taxpayers to the utility’s long-term mismanagement by selling it off and using the money to retire debt and ending exposure to future liabilities.

Instead, incredibly, the province expects the new Crown corporations to be able not merely service their own debt plus the debt transferred to the provincial books, as they are unable to do today, but to retire that debt as well.

The utility’s reaction to its unsustainable debt is to try and assume even more of it. Not only does it want to expand one conventional plant, but it is stubbornly seeking a private sector partner to help it refit Point Lepreau, a risky scheme the province’s own utility regulator has rejected as uneconomic. Nor has the utility made adequate allowance in its books for the foreseeable costs of the massive conversion it will be forced to bear to meet Canada’s Kyoto commitments.

The reason why deregulation and privatization are unpopular solutions to this kind of mess is exactly the reason why they are the right solutions. Even though overall costs come down (in the U.S. they came down nearly 14 per cent for residential users, 13 per cent for commercial and 4.8 per cent for industrial consumers after deregulation, and in the UK the declines reached nearly 30 per cent for households), under a proper commercial regime, all the costs must be reflected in the power bill, not hidden in unsustainable borrowing or tax and other subsidies. The province’s reform package offers the benefits of competitive power markets to a mere handful of the largest industrial users, leaving the average consumer to the tender mercies of NB Power.

The reforms now on offer in New Brunswick will only put off the day when a more realistic solution will have to be found. Until then, expect a lot more debt to be larded onto the taxpayer for no good purpose.